G.D. Dayaratne, Manager, Health Economic Policy Unit – IPS
In recent years there have been a number of developments in alcohol policies the world over. A noteworthy aspect in these is that the greatest public support is given to policy measures that are not seen as intruding on the moderate or occasional drinker and do not penalize the alcohol industry. For example, a comparison of the views on the actual policies and what is practised, suggests that the general public is less supportive of restrictive policies (where access measures are more intrusive) and more supportive of policies that involve lower levels of access.
Responses to alcohol policies successfully implemented by countries, for instance, in Europe, often offer ready-made guides for countries like Sri Lanka to follow, where incongruous alcohol policies are at the core of the problem. There has been no national alcohol policy in Sri Lanka as such, except for ad hoc strategies introduced from time to time, sans long-term prudent objectives. Alcohol has become more readily available over the past three decades with the liberalization of trade and open economy policies adopted since 1977 in Sri Lanka. This has led to some section of the population being open to greater risk of alcohol-related harm. These include the low income, unemployed, or partially employed rural and urban working population who are mainly addicted to consuming of illicitly brewed alcohol
Drinking Patterns in Sri Lanka are Changing
A noteworthy feature of present day drinking in Sri Lanka is that, in general, alcohol consumption among youth has been found to be moderate or significantly low. This is possibly due to reasons such as increasing level of education, increasing awareness of harmful drinking and health concerns, lower purchasing power, and family responsibilities tied to levels of living. There is somewhat of a debate among interest groups, as to whether higher prices of beverage alcohol (either through price differences or taxes) result in a change in alcohol consumption patterns. This is particularly so for certain target groups at higher risk, such as young people with harmful patterns of drinking. Some industry stakeholders support the view that the “Mathata Thitha” (Stop Alcohol) movement has had some impact on the youth. The “Mathata Thitha” concept is a laudable one, and it should focus more on educating children at class room level about the harmful effect of alcohol consumption which will be beneficial to society in the long run. In reality however, there is no fully fledged commitment to implement the programme. The presence of a large illicit alcohol market is a further complicating factor when it comes to implementing workable policies and which can be used by those who wish to obstruct certain policies and add to the prevailing confusion.
Excise Taxes on Liquor
Sri Lanka’s regulations are an anomaly from global practices, where restrictions on liquor are based on the pure alcohol content of the beverage. Accordingly, soft alcohol such as beer which contains a minimum percentage of alcohol, is available with least restrictions and is least taxed, whereas spirits which contain a higher percentage of alcohol are subjected to a higher tax and more restrictions. Successive governments of Sri Lanka have been following contradictory policies with respect to legal alcohol. While they have utilized it as a major source of revenue, and raised excise duty rates on alcohol to prohibitively high levels and still continue to depend on it to finance its expenditure, it is treated as a ‘sin industry’, and obstacles and restrictions are placed affecting its smooth functioning. Like in most other countries, beverage alcohol – beer, wine and distilled spirits like Arrack– are subject to taxation in Sri Lanka, mostly as an excise tax. There are also other taxes associated with beverage alcohol manufacture and consumption such as Corporate Income Taxes, Licence fees, Value Added Sales Taxes, etc. Unlike value-added taxes and sales taxes, excise tax is usually not based on the value of the product being taxed, but it is rather a fixed rate tax or specific tax, expressed as a monetary amount per quantity, as opposed to the value of the product.
According to the supply and demand theory (when all other factors are constant) increases in the price of alcohol should lead to an overall reduction in consumption, and decreases in price should lead to an overall increase in consumption. In Sri Lanka, however, rapid fluctuation in demand for alcohol against the price factor seems to contradict the theoretical model. For example, in 2002 when the government reduced beer prices there had been an increase in consumption of beer but hard liquor consumption didn’t decrease.
It has been a practice of successive governments to treat the legal alcohol industry as a source of backup funding, where revenue could be extracted whenever there is a deficit in financing. The industry contributed around Rs. 23 billion in 2007 and Rs. 27 billion in 2008 as excise tax. However, the reality is that the state coffers do not receive the total taxable income because a substantial amount of liquor produced within the country does not fall under the tax bracket. This segment is known as the “illegal alcohol industry” sector which sells imitated liquor at the same price as the legal product, possibly using the same channels, but does not pay taxes.
One of the prevailing contemporary questions is whether Sri Lankan alcohol policy should aim at eradicating illicit alcohol or whether it should aim to address patterns of drinking that have been found to be particularly harmful, by increasing taxes and controlling the availability of legal alcohol?
Trends in Alcohol Production and Consumption
Since the privatization of Sri Lanka’s key alcohol industry (State Distilleries Corporation) in March 1992, the volume of liquor produced in the country has increased from 14,888,965 (1) proof litres in 1991 to a record level of 38,456,990(2) proof litres in 2007. During the period of 16 years, the production has increased 158 per cent.
The local production and import of liquor has fluctuated in recent years. The production of local liquor in 2006 increased by 16.9 per cent compared to 2005, and it increased further by 11.5 per cent in 2007 compared to 2006. However, in 2008 the production of local liquor increased by only 8.3 per cent when compared with the 2007 production. The total amount of liquor produced by 22 companies in Sri Lanka during 2008 was 103,375,246 litres. The total quantity of liquor imported during 2008 stood at 3,369,287 litres.
The consumption of hard liquor and beer and their local production have seen an overall increase during the past ten years, despite the government’s campaign against the use of alcohol. This is evidenced by the figures placed before the Parliament on 17 January 2011. The amount of beer consumed in 2009 was 52.4 million litres, 53.4 million litres in 2008, 51.8 million litres in 2007, 51.9 million litres in 2006, and 50.6 million litres in 2000. The hard liquor consumption had increased from 52.4 million litres in 2000 to 75.1 million litres in 2009. The local beer and hard liquor production had also risen over the ten year period. The country had produced 42 million litres of beer in 2000, and 55.4 litres in 2009. The hard liquor production had shot up from 52.1 million litres to 75.2 million litres during the same period. These trends indicate that with the increasing living standards of the population, the tendency for alcohol consumption has increased despite a policy framework to combat alcohol consumption in place. It also indicates that the existing policy framework has been less effective in the context of growing human desires.
Further, it has been estimated that there are over 200,000 illicit brew retailers, compared to the 3,200 licensed retail shops (“wine stores”) in the country. It was reported that the Special Operations Branch of the Excise Department is regularly detecting illicit liquor dens of which around 20,000 were in Colombo, Gampaha and Kurunegala districts. Raids of illicit liquor dens, however, do not divert the users to consumption of legally manufactured liquor because illicit liquor consumers are compelled to consume the product that is affordable to them, within their buying capacity. There are also a few large scale manufacturers engaged in distilling high strength illicit alcohol and selling watered down products through established outlets, thereby denying a substantial revenue to government by way of loss of excise duty and VAT.
Concluding Remarks – Rethinking Alcohol Policy Holistically
A major concern for Sri Lanka’s alcohol policy is how to address the high levels of illicit alcohol consumption and its consequences across the country. This issue is particularly relevant among some sections of the population such as the rural, urban and plantation community.
The costs of alcohol-related harm to the general population, as well as within specific sub-populations, suggests that a broad-based unified approach to reduce illicit alcohol consumption is needed along with targeted strategies to reduce harm in specific sub-populations mentioned above. Amidst this situation, there had been a government plan to stop free health care to “Alcohol Addicts”. A Trade Union representing medical doctors in Sri Lanka has protested against government plans to stop free healthcare for those addicted to alcohol. The Trade Union says the new measure would jeopardize doctor-patient relations because medics are required to provide a health report for each patient. According to the Trade Union, the family gets penalized twice – firstly, by the husband’s/father’s alcoholism and secondly, by the government charging for health care.
Illicit alcohol is a serious problem throughout the country. Sri Lanka is not fully acclaimed for its approach to the illicit alcohol industry while it had led to a significant cost to the community. Political influences, weak law enforcement, and unaffordable prices of legal liquor are the determinant factors of the thriving trend of illicit alcohol. The argument articulated by the legal alcohol industry that controls and restrictions only serve to increase the consumption of illicit alcohol is very valid in the Sri Lanka context. It is time to have a second look at the overall alcohol policy in Sri Lanka.
(1) De Mel, Nishan, “Towards Describing the Alcohol Industry and Formulating a Government Policy”, IPS, 1996(2) Administration Report Commissioner General of Excise 2007